Section 32 HOEPA
Use the Section 32 HOEPA form to determine if a loan
is a "High-Cost Mortgage" as defined by the Consumer Financial Protection Bureau (CFPB).
Definition of a High-Cost Mortgage
The CFPB issued High-Cost Mortgage Amendments to the Truth in Lending Act (Regulation Z) effective January 10, 2014. The final rule amends section 1026.32 of Regulation Z by expanding the types of mortgage loans subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for HOEPA coverage, and imposing a prepayment penalty threshold test on mortgages that are covered by HOEPA.
Under HOEPA, a “High-Cost Mortgage” is a consumer credit transaction secured by a consumer's 1-4 unit principal dwelling, including purchase and non-purchase money closed-end credit transactions and HELOCs, in which:
-
The annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by more than:
-
6.5 percentage points for first liens;
-
8.5 percentage points for first liens less than $50,000 secured by a dwelling that is personal property (e.g., manufactured home); or
-
8.5 percentage points for junior liens;
-
The total points and fees exceed:
-
5% of the total loan amount if the loan amount is $21,032 or more; or
-
The lesser of 8% of the total loan amount or $1,052 for a loan amount less than $21,032 (the $1,052 and $21,032 figures are adjusted annually);
-
A prepayment penalty may be charged more than 36 months after consummation or account opening, or may exceed, in total, more than 2 percent of the amount prepaid.
Transactions eligible for HOEPA coverage include purchase-money loans and home-equity lines of credit (HELOCs). Transactions excluded from coverage include: reverse mortgage loans, loans to finance the initial construction of a dwelling, loans originated by a Housing Finance Agency (i.e., HFA is the creditor), and loans under USDA's Section 502 Direct Loan Program.
For transactions not exempt from HOEPA coverage, Encompass applies the HOEPA coverage tests to determine if the transaction is a Federal High-Cost Mortgage. There are three separate HOEPA coverage tests based on:
-
The transaction’s annual percentage rate (APR)
-
The amount of points and fees paid in connection with the transaction
-
The prepayment penalties you may charge under the loan or credit agreement
Section 32 Qualification Tests
If the loan exceeds the threshold for any of the three tests, it qualifies
as a high cost mortgage under Section 32.
APOR Test
-
Enter the Application Date, which is the date on which the creditor receives a written application (submission of a consumer’s financial information in anticipation of a credit decision). An application is received when it reaches the creditor. If it reaches the creditor through an intermediary agent or broker, the application is received when it reaches the creditor, not when it reaches the agent or broker.
This date should also be reflected in the Application Date on the Borrower Summary - Origination (field ID 745) and 1003 Signature Date on the 1003 Loan Application - Page 3 (field ID 3261).
-
In the Last Rate Set Date field, enter the date that the interest rate was last set or revised.
-
In the Rate Set Index field, type the index rate as it existed on the date when the rate was set.
-
Click the Calculate HOEPA APR button to populate the HOEPA APR % field.
-
If the HOEPA APR (field S32DICS.X177) exceeds the APOR (field ID 3134) by more than 6.500% for first lien loans, then The result of the HOEPA APOR Test: This loan [Does] (field S32DISC.X2) exceed the threshold will occur.
-
If the HOEPA APR (field S32DICS.X177) exceeds the APOR (field ID 3134) by more than 8.500% for subordinate lien loans, The result of the HOEPA APOR Test: This loan [Does] (field S32DISC.X2) exceed the threshold will occur.
-
If either of the above two conditions are not met, then The result of the HOEPA APOR Test: This loan [Does not] (field S32DISC.X2) exceed the threshold will occur.
Any time an Encompass Compliance Service (ECS) review or preview is run, the APOR value (field ID 3134) is updated based on the ECS calculation.
-
To determine the applicable rate threshold, click the View Rate button to view Average Prime Offer Rates tables provided by the FFIEC (Federal Financial Institutions Examination Council) and then enter the applicable average prime offer rate.
Any time an Encompass Compliance Service (ECS) review or preview is run, the APOR value is updated based on the ECS calculation. This APOR value is not recalculated when a loan team member clicks the Lock and Confirm button on the Secondary Registration tool to lock the loan rate and confirm the lock with the lock requestor.
-
In the two fields related
to the comparison of the HOEPA APR to the APOR , type 6.5 in the first field if this is a first
mortgage, or type 8.5 in the second
field if this is a subordinate mortgage.
APOR Test
-
Enter the Application Date, which is the date on which the creditor receives a written application (submission of a consumer’s financial information in anticipation of a credit decision). An application is received when it reaches the creditor. If it reaches the creditor through an intermediary agent or broker, the application is received when it reaches the creditor, not when it reaches the agent or broker.
This date should also be reflected in the Application Date on the Borrower Summary - Origination (field ID 745) and 1003 Signature Date on the 1003 Loan Application - Page 3 (field ID 3261).
-
In the Last Rate Set Date field, enter the date that the interest rate was last set or revised.
-
In the Rate Set Index field, type the index rate as it existed on the date when the rate was set.
-
Click the Calculate HOEPA APR button to populate the HOEPA APR % field.
-
If the HOEPA APR (field S32DICS.X177) exceeds the APOR (field ID 3134) by more than 6.500% for first lien loans, then The result of the HOEPA APOR Test: This loan [Does] (field S32DISC.X2) exceed the threshold will occur.
-
If the HOEPA APR (field S32DICS.X177) exceeds the APOR (field ID 3134) by more than 8.500% for subordinate lien loans, The result of the HOEPA APOR Test: This loan [Does] (field S32DISC.X2) exceed the threshold will occur.
-
If either of the above two conditions are not met, then The result of the HOEPA APOR Test: This loan [Does not] (field S32DISC.X2) exceed the threshold will occur.
Any time an Encompass Compliance Service (ECS) review or preview is run, the APOR value (field ID 3134) is updated based on the ECS calculation.
-
To determine the applicable rate threshold, click the View Rate button to view Average Prime Offer Rates tables provided by the FFIEC (Federal Financial Institutions Examination Council) and then enter the applicable average prime offer rate.
Any time an Encompass Compliance Service (ECS) review or preview is run, the APOR value is updated based on the ECS calculation.
-
In the two fields related
to the comparison of the HOEPA APR to the APOR , type 6.5 in the first field if this is a first
mortgage, or type 8.5 in the second
field if this is a subordinate mortgage.
Points and Fees Test
This section determines if the current loan does or does not exceed the Points and Fees threshold. For a loan amount of $21,032 or more total points and fees cannot exceed 5% of the total loan amount; for loan amounts less than $21,032 the total points and fees cannot exceed the lesser of 8% of the total loan amount or $1,052; the $1,052 and $21,032 dollar amounts used in this test may be adjusted each year, effective January 1.
High-Cost Points and Fees Threshold and Definition
Which points and fees threshold applies depends on whether the face amount of the note, in a closed-end transaction, or the credit limit, in an open-end transaction, is $21,032 or more. In contrast, for the points and fees threshold calculation, the final rule uses a “total loan amount.” In a closed-end transaction the “total loan amount” is calculated by starting with the Regulation Z defined amount financed and subtracting (1) any financed item listed in 1026.4(c)(7) which is unreasonable or is paid to the creditor or an affiliate; (2) any financed credit insurance premium; and (3) the prior loan's prepayment penalty if it is financed, subject to certain limitations. The HELOC “total loan amount” is the credit limit.
-
If not automatically populated, click the blue Lock icon (if available) to manually enter the Regulation Z Total Loan Amount (defined above).
-
For the Maximum Percentage of the total loan amount for points and fees allowed, enter 5 for loan amounts over $21,032; enter 8 for loan amounts less than $21,032.
-
The Maximum points and fees allowed field is a calculated field that calculates the Regulation Z Total Loan Amount multiplied by the maximum percent allowed.
-
If available, click the blue Lock icon to manually overwrite the calculated value in the Total Section 32 points and fees in this loan field. This field calculates the total of the points and fees that are designated in the 800, 1100, 1200, and 1300 sections as being paid to a lender, broker, or affiliate.
Administrators may create a Data Template (under the Loan Templates setting in Encompass Settings) for use with this form to automatically populate data to these fields as needed.
Prepayment Penalty Threshold Test
This section determines if a loan exceeds the threshold for the Prepayment Penalty test. Per CFPB regulations, a transaction is a Federal High-Cost Mortgage if the lender may charge a prepayment penalty:
-
More than 36 months after consummation or account opening, or
-
In an amount more than 2 percent of the amount prepaid.
For purposes of this threshold, a prepayment penalty does not include (1) certain conditionally-waived upfront bona fide third-party closing costs; and (2) until January 21, 2015, interest charged consistent with the monthly interest accrual amortization method for FHA insured transactions.
Section 32 Qualification Section
The This loan [does/does not] (field ID S32DISC.X51) qualify as a High Cost Mortgage under HOEPA/Section 32 indicator is provided to show if loan exceeds any of the three Section 32 Qualification tests.